About This Blog

Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

Morris James Blogs

Links

Federal Court Excludes Expert Testimony As Irrelevant Under The Daubert Standard.

Posted In Discovery
iGames Entertainment, Inc. v. Chex Services, Inc., C.A. No. 04-180-KAJ, 2005 WL 3657156 (D.Del. June 9, 2005). This matter springs from a commercial dispute. The present opinion pertains to plaintiff's Daubert Motion seeking to exclude a part of the proposed expert testimony of defendants' expert. The expert intended to testify on accounting matters. The Court granted plaintiff's motion holding that the challenged parts of the proposed testimony failed the test of relevancy. iGames is the holding company for Money Centers of America and Available Money. They provided cash access and the financial management systems that catered to the needs of the gaming industry. Defendant Equitex, Inc. ("Equitex") owned Chex Services, Inc. ("Chex") during the relevant time when the events forming the factual basis for the complaint occurred. Chex provided the cash-access services to the gaming establishments. The plaintiff and defendants entered into a stock purchase agreement ("SPA") in 2003. The SPA required iGames to acquire all the assets of Chex. Chex and iGames also entered into a Term Loan Note ("Note") in 2004 that required plaintiff to pay interest at 15% p.a. to Chex. The transaction subsequently collapsed and the parties sought resolution of their commercial disputes in court. Chex contended that iGames had breached its contract with it. To aid in its interpretation of the contractual duties that ran to plaintiff from their contract, defendants retained an accountant who prepared his expert report based on the Note's terms. The expert asserted that the Note imitated a lease, calling for fixed monthly payments and additional "percentage rent" based on sales revenue. The defendants expert claimed that iGames defaulted on its obligations under the Note. The Court examined the experts intended opinion under Fed.R.Evid. 702. It agreed with plaintiff that the expert's opinion did not fit the facts sufficiently because he related the obligations under the Note to lease payments without any supporting analysis. The Court observed that "there is no effort by the [expert] to explain how a note involving a loan incident to the acquisition of a fee-for-cash business is sufficiently like a commercial real estate lease to warrant his importing concepts from such leases into the case." Additionally, the Court observed that there was a fundamental failure in defendants reliance on this type of expert testimony: they had failed to create the predicate for offering expert testimony on the meaning of the Note's terms. The Court stated that a contract dispute required an inquiry on what the parties meant by the terms and language they used in their contract. The defendants expert's intended testimony was not relevant because he did not link the contract language to what the parties understood the contract to mean. Therefore, the court held that such testimony would be impermissible under Third Circuit case law. Accordingly the Court allowed plaintiff's motion and denied the proposed testimony. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com